PURPOSE

The purpose of this report is to provide City Council with information concerning a resolution to enter into an agreement with the California State Franchise Tax Board (SFTB) on the City�s participation in the Local Government Sharing Program, as granted by AB 63.  This information will provide staff with the necessary tools to complete the final phase of the Burbank Business Tax Penalty Amnesty Program.

BACKGROUND

In FY 05-06 Council approved a three-phase Business Tax Penalty Amnesty Program for the purpose of collecting past and present business taxes owed by Burbank businesses which had not registered or paid for their required business taxes.  Business tax penalty amnesty programs are designed to grant businesses amnesty from criminal and financial penalties owed for not having registered or paid for local business taxes.  In FY 06-07 Council appropriated $5,000 to conduct the three phases of this program.  To date, the first two phases of the program have generated $131,774 in current and back business taxes owed from 260 unregistered Burbank-based businesses.

Phase I

Phase I of the Amnesty Program was a broad public information and education advertising campaign promoting the availability of the program.  To advertise and promote the Business Tax Penalty Amnesty Program staff utilized: newspaper advertisements; website postings; City Council announcements; TV6 programming; notifications in the Burbank Chamber of Commerce newsletter; presentations to Burbank service clubs; telephone hotlines; utility billing inserts; and informational brochures distributed at fourteen different locations throughout the City.

The primarily focus of this phase was to promote the availability for businesses to voluntarily come forward without fear of criminal or financial penalties whatsoever, and pay current and past business taxes owed.   This phase of the program lasted three months and collected $104,995 from 200 unregistered businesses.

Phase II

Phase II of this program involved the License and Code Services staff making contacts with businesses to collect business taxes owed.  These contacts were conducted either as street surveys, mailings, or telephone calls.  The most successful portion of Phase II occurred when inspectors physically canvassed the commercial and industrial zones in the city seeking to register and collect business taxes owed.

Staff feels that this phase of the program was also successful from a public relations perspective because at no time was it necessary for the City Attorney�s Office to get involved in prosecuting any unregistered businesses.  Phase II lasted nine months and generated revenues of $26,779 from 60 unregistered businesses.

Phase III

The final phase of the program involves the City of Burbank paying for and receiving electronic business tax information shared by the SFTB.  This information will be used to generate maximum business tax returns for current and past taxes owed.  Once businesses that are discovered through SFTB information are on the tax rolls, additional future revenues will be collected for years to come as these businesses remain in Burbank. 

ANALYSIS

AB 63 is state legislation enacted in 2001 granting the SFTB the ability to share state business tax information with California cities for the sole purpose of cities utilizing this information to collect local business taxes owed (copy of AB 63 attached as Exhibit A).  This information is offered at a price that is calculated on a pro-rata basis determined by the cost of providing the information, divided by the number of cities requesting the information.

How Does AB 63 Work?

All businesses which operate in the state of California must annually file state business income tax returns.  This state business income tax information is available to local governments through AB 63 for the purpose of collecting local business taxes owed.  This information is only provided if the local government enters into an agreement with the SFTB and pays the fee charged for the information.

Burbank will be using this information to verify which businesses report to the State of California as operating in Burbank.  This information will then be cross-referenced with the Burbank business tax list to generate an exception report of businesses that are on the state list, but not on the Burbank list.  The businesses which are on the exception report will become candidates for audit of Burbank business taxes owed.

What are the Specifics of the SFTB Agreement?

The SFTB agreement is what is known as their �Standard Agreement� (copy of agreement is attached as Exhibit B).  Staff forwarded this agreement to the Burbank City Attorney�s Office for review and the City Attorney�s Office determined that the document was appropriate for the type of agreement being entered in to.   The duration of the agreement is from April 1, 2007 through December 31, 2007 and will provide SFTB information from the 2006 calendar year.  The information provided will be the business taxpayer�s:

• Name

• Address

• Social Security Number or Federal Employee Identification Number

• Principal Business Activity Code (SIC Code)

This information will be identified by zip codes located within the jurisdictional boundaries of the City and will be provided via a transmitted database to the City on a CD-Rom through a secure electronic connection no later than December 31, 2007.  The information is confidential and not public record.  As part of the agreement each employee who may have access to the confidential data of the SFTB will be required to sign a statement, attesting to the fact that he/she is aware of the confidential data and the penalties for unauthorized disclosure thereof.

FISCAL IMPACT

The cost of this agreement to the City is $2,384.  Attached as Exhibit C, is a breakdown cost to the 64 cities in the state of California which are entering into this agreement.  There are budgeted funds available to purchase this data.  Staff estimates that the AB 63 information will initially generate $20,000 to $30,000.  This amount does not include the perpetual annual business tax returns which will continue as long as these businesses remain active in the City of Burbank.

CONCLUSION

Staff recommends Council approve A RESOLUTION OF THE COUNCIL OF THE CITY OF BURBANK APPROVING THE STANDARD AGREEMENT BETWEEN THE STATE FRANCHISE TAX BOARD AND THE CITY AND AUTHORIZING THE CITY�S PARTICIPATION IN THE LOCAL GOVERNMENT SHARING PROGRAM.

EXHIBITS

A         Copy of AB 63

B         State Franchise Tax Board Standard Agreement for AB 63 Participants

C         List of AB 63 Participating California Cities and Cost of Individual AB 63 Programs

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